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News By Edition
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RESPA News Monthly Edition
RESPA News Monthly June 2014
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Can borrower inducements get you into trouble?
Posted Date: Monday, April 7, 2014
Title companies are, at their foundation, businesses, and they need profits to survive. Obtaining new clients brings in profits, and one way to get clients is to offer incentives. RESPA prohibits the receipt of kickbacks in exchange for referrals and the splitting of fees when no service is performed. The statute does not prohibit borrower incentives. Some states, however, are taking a different stance.
“In some instances, a title company may want to give the consumer a discounted rate or a coupon,” said Marx Sterbcow, managing partner of Sterbcow Law Group LLC. “It’s not on behalf of anybody. It’s an actual coupon, a consumer incentive. Some state regulators are coming down on these types of incentives and going after title companies.”
Bringing enforcement actions against title companies for offering borrower discounts is “contrary to what Department of Housing and Urban Development (HUD) promoted for more than 30 years,” Sterbcow said.
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RESPA Section 8: Fee splitting issues
Posted Date: Monday, May 5, 2014
RESPA Section 8(b) prohibits the splitting of fees when no service has been performed. So, what constitutes a RESPA violation? Do you just need to keep away from unearned, divided fees? What about markups, overcharges and unearned, undivided fees? The federal circuit courts have provided answers to these questions.
RESPA Section 8(b) states that “No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.”
Unlike Section 8(a), a referral is not required for there to be a violation.
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RESPA Section 8(c)(2): Understanding the exceptions
Posted Date: Monday, May 12, 2014
RESPA Section 8(a) prohibits the giving or accepting of a thing of value for a referral of real estate settlement service business. Section 8(b) states that the splitting of a fee for a settlement service is not allowed if services are not actually performed. In some ways, RESPA can be a difficult statute to understand, what is clear, however, is that kickbacks and split fees can get you into trouble if you are not careful.
RESPA Section 8(c) provides some exceptions that allow the mortgage, title and settlement service industries to work together without committing a RESPA violation. These exceptions are very specific and understanding how the courts and the Consumer Financial Protection Bureau (CFPB) interpret them is important.
The exceptions include:
- A payment of a fee:
- To attorneys for actual services rendered,
- By a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance, or
- By a lender to its duly appointed agent for services actually performed in the making of a loan;
- The payment to any person of a bona fide salary or compensation for goods or facilities actually furnished or for services actually performed (Section 8(c)(2));
- Payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and brokers;
- An employer’s payment to its own employees for any referral activities;
- Affiliated business arrangements as long as certain conditions are met; and
- Transactions on the secondary market.
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Disclosures: Timing is important
Posted Date: Thursday, March 20, 2014
Not only does the Consumer Financial Protection Bureau’s (CFPB) final integrated RESPA/Truth in Lending Act (TILA) mortgage disclosure forms rule introduce the Loan Estimate and the Closing Disclosure, it also makes various changes to the timing of the forms.
The Loan Estimate
The Loan Estimate, which takes the place of the Good Faith Estimate and the initial TILA disclosure, must be provided to the consumer within three business days after the application.
In addition, the Loan Estimate must be provided seven business days prior to closing. It’s important to note that the definition of business day for the Loan Estimate’s three-day disclosure to the consumer does not include Saturdays; however, the definition of business day for the seven-day waiting period does include Saturdays.
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Speakers address strategic partnerships and CFPB enforcement
Posted Date: Thursday, May 8, 2014
Strategic partnerships can be highly beneficial for the parties involved. With the benefits, however, also come some risks if the venture is not compliant. Compliance is crucial to avoiding a RESPA violation and an enforcement action by the Consumer Financial Protection Bureau (CFPB). During October Research, LLC’s 2014 National Settlement Services Summit (NS3) in June, expert attorneys will discuss the ins and outs of complying with the laws and regulations governing affiliated business arrangements (AfBAs) and marketing services agreements (MSAs), as well as CFPB enforcement and increased regulatory scrutiny.
At the NS3 session, The Truth about Affiliated Businesses, Marketing Agreements and CFPB Enforcement, compliance attorneys Jeffrey Arouh, partner at McLaughlin & Stern LLP and Mitchel Kider, chairman and managing partner at Weiner Brodsky Kider PC, will provide in-depth information regarding AfBAs, MSAs and other strategic partnerships.
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ABA, others urge regulatory agencies to coordinate
Posted Date: Monday, May 19, 2014
A group of trade associations urged increased coordination between the Federal Housing Administration (FHA) and the Consumer Financial Protection Bureau (CFPB).
In a comment letter to the Department of Housing and Urban Development (HUD), the American Bankers Association, American Financial Services Association, Consumer Mortgage Coalition and Mortgage Bankers Association, said that an FHA proposed regulatory amendment that would allow mortgagees to charge interest only through the day a loan is fully paid is necessary because of a recent CFPB regulation.
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Borders & Borders court battle over alleged sham AfBAs continues
Posted Date: Thursday, May 15, 2014
The Consumer Financial Protection Bureau (CFPB) filed a complaint in October 2013 against Borders & Borders PLC, a Kentucky law firm, for allegedly violating RESPA. The bureau said the firm, and its principals, used a network of sham affiliated business arrangements (AfBAs) to pay kickbacks in return for referrals of real estate settlement business. The agency also claimed that Borders failed to provide its customers with adequate AfBA disclosures, which are required under RESPA and Regulation X.
Borders denied the CFPB’s allegations and decided to battle it out in court. On May 1, Borders asked the U.S. District Court for the Western District of Kentucky to dismiss the case.
The law firm filed a motion for judgment on the pleadings, arguing that the test the CFPB used to determine the AfBAs were shams was invalid.
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Section 8(c) exemption: Court finds ‘service’ means ‘settlement service’
Posted Date: Thursday, May 8, 2014
In a case against Fidelity National Financial Inc., two homeowners, Melissa Henson and Keith Turner, alleged that the company violated RESPA by receiving fees from delivery companies in exchange for referring overnight delivery business to the carriers using its escrow subsidiaries. The company argued that it performed actual services in exchange for the marketing fees, and asked the court to dismiss the case. The court denied the motion, finding that the phrase “for services actually performed” contained in Section 8(c)(2) refers specifically to “settlement services.”
Fidelity previously filed a motion asking the court to dismiss the class action complaint. The court granted the motion in part, by removing Henson from the action and eliminating Turner’s claim under RESPA Section 8(b). The court did not, however, dismiss Turner’s Section 8(a) claim.
Fidelity then filed a motion on the pleadings, asking the court to dismiss Turner’s Section 8(a) claim. The company argued that it provided actual services in exchange for marketing fees, which is allowed under RESPA.
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Bank argues broker should indemnify it for HUD-1 errors
Posted Date: Monday, May 12, 2014
A lender sued a mortgage broker for allegedly selling the lender a loan package that did not meet Fannie Mae’s requirements. According to the lender, the broker signed an agreement that made it liable for errors on the loan documents, while the broker argued that the error was made by the lender on the HUD-1 Settlement Statement. The court denied the lender’s motion for summary judgment, finding that there were factual issues regarding the errors to the closing documents.
Flagstar Bank filed a breach of contract suit against John Estrella who was doing business as Able Mortgage Co.
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Borrower claims servicer engaged in a pattern of RESPA noncompliance
Posted Date: Thursday, April 24, 2014
A mortgage loan borrower sued his servicer for failing to respond to seven qualified written requests (QWRs). The borrower sued for statutory damages, alleging that the servicer engaged in a pattern of noncompliance activity. The bank filed a motion for summary judgment, but the court agreed that there was evidence of a possible RESPA violation.
Mohammad Mazed obtained a residential mortgage loan from Washington Mutual Bank in December 2002. He attempted to modify his loan but was unsuccessful, and the bank began foreclosure proceedings on his property.
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Borrowers say servicer used excessively-priced force-placed insurance
Posted Date: Thursday, May 8, 2014
Two mortgage borrowers sued their servicer for an alleged force-placed insurance scheme where the servicer inflated the price of the insurance in return for a kickback. There have been many similar cases where borrowers say inflated force-placed insurance violates RESPA, but this argument hasn’t had much traction. In this case, the borrowers relied on state law.
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Court reprimands servicer in QWR case
Posted Date: Monday, May 5, 2014
In a RESPA lawsuit where the plaintiff sued her mortgage servicer for failing to take action after receiving multiple qualified written requests (QWRs), the court denied the servicer’s motion to dismiss and reprimanded the servicer for the arguments it made in the case.
Cynthia Gogliotti sued Ocwen Loan Servicing LLC, alleging the servicer violated RESPA by failing to take action after receiving her QWRs.
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Servicer argues plaintiffs’ letter not valid QWR
Posted Date: Monday, May 5, 2014
The defendants in a RESPA action requested the court dismiss the claims against them related to an alleged qualified written request (QWR) the plaintiffs sent to them. The defendants argued the letter was not a valid QWR. The court disagreed, and denied the defendants’ motion to dismiss.
Todd and Lisa Mayer executed an adjustable rate note with GreenPoint Mortgage Funding Inc. in October 2005. The couple also executed a mortgage in favor of GreenPoint. EMC Mortgage Corp. was the originator of the mortgage, and JP Morgan Chase Bank NA was the servicer.
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Supreme Court to resolve TILA rescission split
Posted Date: Thursday, May 1, 2014
Currently, there is a split in the U.S. Federal Circuit Courts of Appeal regarding the Truth in Lending Act’s (TILA) right of rescission.
Under TILA, a borrower is permitted to rescind their mortgage loan within three days of closing or when the required rescission forms are delivered, whichever is later. If the disclosures are not made, the right of rescission expires three years after consummation of the loan.
The issue the circuit courts can’t agree on is what actions the borrower must take in order to have a valid rescission.
Some of the courts have held that the borrower need only provide the lender with a notice of rescission within the three-year time period. Once that notice has been provided, those courts will allow the borrower to sue for rescission even if the suit is filed more than three years after the violation.
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CFPB proposes QM changes
Posted Date: Thursday, May 1, 2014
The Consumer Financial Protection Bureau (CFPB) proposed minor adjustments to its mortgage rules to ensure access to credit. The proposal includes two changes that would help certain nonprofit organizations continue to provide mortgage credit and servicing to underserved populations. The proposal also lays out limited circumstances where lenders that exceed the points and fees cap can refund the excess amount to consumers and still have the loan be considered a qualified mortgage (QM).
“Our mortgage rules are now helping to protect consumers all across the country from debt traps, runarounds and surprises,” said CFPB Director Richard Cordray. “The proposal would maintain those strong protections, while making minor changes to ensure consumers have access to credit. This includes helping nonprofits that provide working families with important pathways to affordable homeownership.”
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North Carolina man sentenced to 42 months in prison for mortgage fraud
Posted Date: Thursday, May 29, 2014
U.S. Attorney Thomas Walker announced that Mark Henry Tkac, of Raleigh, N.C., was sentenced to 42 months in prison, followed by five years of supervised release, on a charge of conspiracy to commit mail, wire and bank fraud. Chief U.S. District Judge James Dever, III, also ordered Tkac to pay $1.6 million in restitution.
“This case reaffirms the commitment of this office to hold accountable those who knowingly used their expertise in the real estate industry for their own fraudulent gain in the midst of the mortgage bubble of the 2000s,” said Assistant U.S. Attorney William Gilmore. “I commend the Internal Revenue Service (IRS)-Criminal Investigation for its perseverance to see these offenders brought to justice, despite the passage of time since the height of the mortgage crisis.”
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Obama nominates new HUD secretary
Posted Date: Thursday, May 29, 2014
On May 23, President Barack Obama nominated Julian Castro to be the next secretary of the Department of Housing and Urban Development (HUD).
Castro is currently the mayor of San Antonio, where he is serving his third term. In March 2010, Castro was named to the World Economic Forum’s list of Young Global Leaders. He was also placed in Time magazine’s “40 under 40” list of rising stars in American politics.
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Fed, CFPB Office of Inspector General launches new website
Posted Date: Thursday, May 29, 2014
The Office of Inspector General (OIG) for the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau (CFPB) launched a new public website that delivers a better user experience and is reader-friendly on mobile devices and tablets. Site improvements include intuitive navigational features, clearer content and cleaner design elements.
“This redesign is just one example of our commitment to continuous improvement,” said Mark Bialek, inspector general for the Fed and the CFPB. “Designed with input from our stakeholders, we believe our new site provides greater accessibility to our information that will enhance our communication to the Fed, the CFPB, Congress and the public.”
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Six indicted in $22.8 million mortgage fraud scheme
Posted Date: Thursday, May 22, 2014
A condominium developer and two attorneys are among six defendants facing federal charges for allegedly engaging in a $22.8 million mortgage loan fraud scheme, the U.S. Attorney’s Office for the Northern District of Illinois announced. The defendants allegedly caused buyers to fraudulently obtain approximately 60 mortgages from various lenders to purchase condominiums.
Real estate developer Warren Barr, III, was a member of 13th & State LLC, which obtained a $55.7 million loan in 2005 to finance the development and construction of Vision on State, a 250-unit building, between 2004 and 2008. Barr was charged with nine counts of bank fraud and four counts of making false statements on loan applications in a 13-count indictment that was returned by a federal grand jury.
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Is the CFPB transparent enough?
Posted Date: Thursday, May 22, 2014
The Financial Institutions and Consumer Credit subcommittee of the House Committee on Financial Services held a hearing on May 21 to review legislative proposals that could make the CFPB more transparent.
The hearing, titled “Legislative Proposals to Improve Transparency and Accountability at the Consumer Financial Protection Bureau (CFPB),” examined seven bills and four discussion drafts aimed at promoting better transparency from the CFPB.
The witnesses included: Andrew Pincus, partner, Mayer Brown LLP (speaking for the U.S. Chamber of Commerce); Hester Peirce, senior research fellow, Mercatus Center, George Mason University; Rob Chapman, president, American Land Title Association (ALTA); and Ed Mierzwinski, consumer program director, United States Public Interest Research Group.
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C3 Compliance Solutions announces merger
Posted Date: Thursday, May 22, 2014
C3 Compliance Solutions, a company founded by Ari Karen, an attorney with Offit Kurman, has merged with Strategic Compliance Partners (SCP). The announcement was made by Karen, who in addition to his legal practice will act as chief executive officer of Strategic Compliance Partners.
“C3 was created to help mortgage lenders comply with new consumer protection laws and regulations,” Karen said. “With Strategic Compliance Partners we can do more. Instead of simply responding to regulatory challenges, we will provide clients with access to forward looking solutions involving new technologies to advance compliance origination and other aspects of the lending process.”
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Miller to reveal the three most powerful growth strategies
Posted Date: Thursday, May 22, 2014
Dan Miller, chief executive officer at RightNow Consulting, will be giving title agents insights on how to meet the needs of their best customers at the 2014 National Settlement Services Summit (NS3) in New Orleans, June 9-11.
“I have had the good fortune of gaining experience running and advising large scale real estate agencies and mortgage banks over the last seven years,” Miller said. “I am looking forward to sharing these experiences and insights with title agents who want to use the current business and regulatory climate to dramatically expand their profits. Some of the biggest challenges the industry faces present the largest opportunities.”
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Title agency refunds $2.3 million to consumers
Posted Date: Thursday, May 22, 2014
Thousands of affected consumers are receiving refund checks in their mailboxes from LSI Title Agency Inc., a Pennsylvania title company. In December 2013, the Maryland Insurance Administration (MIA) ordered LSI to pay consumers who were overcharged during real estate settlements. Those checks now are in the mail.
The MIA investigated the Coraopolis, Pa., company last year and ordered it to repay more than 5,000 consumers a combined $2,276,736, plus interest, for recordation tax overpayments made between July 1, 2008, and Dec. 31, 2012.
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Start preparing now for the new mortgage disclosure forms
Posted Date: Monday, May 19, 2014
Next year, business practices will change dramatically and lenders and title agents will have to work even closer together to close real estate transactions. This is all because in August, they will be required to issue new Loan Estimate forms and Closing Disclosure forms.
Gone will be the initial and final Truth in Lending Disclosure and the Good Faith Estimate and HUD-1 Settlement Statement. Instead, borrowers will be provided with combined disclosures designed by the Consumer Financial Protection Bureau (CFPB). Along with the forms are new regulations industry members will have to follow.
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Connecticut man sentenced to prison for role in mortgage fraud scheme
Posted Date: Monday, May 19, 2014
Deirdre Daly, U.S. Attorney for the District of Connecticut, announced that Domingos Dias, formerly of Trumbull and currently residing in Easton, was sentenced by U.S. District Judge Stefan Underhill to 30 months of imprisonment, followed by three years of supervised release, for his involvement in a mortgage fraud scheme that caused more than $3 million in losses to lenders.
According to court documents and statements made in court, Dias participated in a conspiracy to fraudulently obtain real estate loans from banks and mortgage lenders through the use of straw buyers.
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CFPB launches TILA eRegulation tool
Posted Date: Thursday, May 15, 2014
The Consumer Financial Protection Bureau (CFPB) announced the launch of the Truth in Lending Act (TILA) in a new electronic format. The eRegulations tool is meant to present the regulation in a clear, readable form that is easy to navigate. The agency is also looking for feedback about the tool and its usefulness.
The CFPB launched its eRegulations tool last year, seeking to provide regulations in a format that’s easier to find and understand. The hope was that the tool would lead to better compliance.
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Connecticut man admits role in mortgage fraud scheme
Posted Date: Thursday, May 15, 2014
The U.S. Attorney for the District of Connecticut announced that Taimur Aurora of Stamford, waived his right to indictment and pleaded guilty before Chief U.S. District Judge Janet Hall in Bridgeport to conspiring to defraud financial institutions through an extensive mortgage fraud scheme that involved dozens of properties in Fairfield County.
According to court documents and statements made in court, between 2005 and 2013, Aurora participated in a mortgage fraud conspiracy that involved the purchase of numerous single and multi-family properties, primarily in Bridgeport and Stamford.
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Keynote to stress changing expectations for third-party vendors
Posted Date: Tuesday, May 13, 2014
The Consumer Financial Protection Bureau’s (CFPB) efforts to streamline mortgage disclosures and the closing process will likely demand heightened cooperation between lenders and settlement services providers in the coming months. However, regulators’ vendor management expectations are already having an impact on the lender/service provider relationship. In a keynote speech at October Research, LLC’s 2014 National Settlement Services Summit (NS3) in June, Mike Flynn, executive vice president and general counsel with Flagstar Bank, will describe what lenders need from their settlement services providers to remain compliant.
“The question of third-party vendor management for lenders is a growing area of focus, emphasized by the recent guidance regulators issued,” Flynn said.
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Webinar to provide tech training for QM/ATR compliance - Webinar
Posted Date: Monday, May 12, 2014
In a fast-pace business world relying heavily on technology to conduct transactions, it is becoming more important than ever for banks and mortgage lending institutions to understand how technology plays a crucial role in complying with state and federal laws and regulations. Join your colleagues, the staff of Dodd Frank Update and sponsor Medallion Analytics for a webinar on May 21 to learn about technology’s role in implementing Dodd-Frank regulations.
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Six people indicted in $30 million mortgage fraud scheme
Posted Date: Monday, May 12, 2014
The U.S. Attorney’s Office for the Eastern District of New York unsealed an indictment charging six men with carrying out a $30 million bank fraud conspiracy by fraudulently inflating the prices of homes for sale and then obtaining mortgages that far exceeded the true collateral value of properties in Nassau and Suffolk Counties.
Through his mortgage banking company, defendant Aaron Wider and his co-conspirators allegedly re-sold these toxic mortgages to banks and other investors in the secondary mortgage market, causing millions of dollars in losses when the loans went into foreclosure.
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CFPB reports on mortgage debt challenges for older Americans
Posted Date: Monday, May 12, 2014
The Consumer Financial Protection Bureau (CFPB) released a snapshot report spotlighting the mortgage debt challenges faced by a growing number of older Americans. These challenges include more mortgage debt, less affordable housing and greater risk of foreclosure. The CFPB also issued a consumer advisory reminding older consumers approaching retirement to think about their mortgage pay-off date and to consider their retirement income and expenses.
“A home can be a place of security for older Americans in their retirement years — a roof over their heads as well as a valuable asset,” said CFPB Director Richard Cordray. “But as more seniors carry significant mortgages into retirement, they put themselves at risk of losing their nest eggs and their homes.”
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CFPB proposes privacy disclosure rule
Posted Date: Thursday, May 8, 2014
The Consumer Financial Protection Bureau proposed a rule to promote more effective privacy disclosures from financial institutions to their customers. The rule would allow companies that limit their consumer data-sharing and meet other requirements to post their annual privacy notices online rather than delivering them individually
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Conviction in $10 million mortgage fraud scheme
Posted Date: Monday, May 5, 2014
In Florida, two people were found guilty in a $10 million mortgage fraud scheme. They face possible prison time and fines of $250,000.
A. Lee Bentley, III, the U.S. Attorney for the Middle District of Florida, announced that a federal jury found James Sotolongo guilty of one count of conspiracy and eleven counts of bank fraud.
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Protecting yourself, your customers and your office with a compliant escrow office
Posted Date: Thursday, May 1, 2014
It seems like every time you turn around, you hear about a new threat to your escrow accounts, or another escrow agency owner discovering that their trusted employee has been stealing escrow funds from behind their back. These threats are real and regulators and legislators are standing up and taking notice. In this environment, it’s more critical than ever to make sure you are operating a compliant escrow operation. At the 2014 National Settlement Services Summit (NS3), industry members and a seasoned regulator will provide the tools you need to protect your most valuable asset.
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Maryland woman sentenced to prison for mortgage fraud scheme
Posted Date: Thursday, May 1, 2014
U.S. District Judge James Bredar sentenced Bonnie Kreamer, of Riva, Md., on April 25, to 51 months in prison, followed by three years of supervised release, for conspiring to commit wire fraud in connection with a mortgage fraud scheme that resulted in losses of more than $4.8 million. Bredar also ordered Kreamer to pay restitution of $2,499,048 to the victims and to forfeit $4.8 million. The sentence was announced by U.S. Attorney for the District of Maryland Rod Rosenstein.
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Housing finance reform placed on short hold
Posted Date: Thursday, May 1, 2014
Senate Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, agreed to a short recess of a markup of S. 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013, to allow for more time to broaden bipartisan support.
“While I do not relish the idea of a short delay, I am pleased that a number of Senators believe with just a brief period of additional time to consider it, they will have the opportunity to productively join us in efforts to reform the current system,” Crapo said. “I look forward to working with my colleagues in the coming days, to listening to their questions or concerns to help us find a bipartisan consensus with even stronger votes.”
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